Solar Rally Cut Short by Europe's Tariff Moves

For a while there, it looked like 2010 might be the first banner year for solar stocks since 2007. It still could be, although this week is showing that, if solar does make a comeback this year, it’s not going to happen with out some sudden and stomach-churning setbacks.

The first week or so of a calendar year can be an interesting — if not always accurate — gauge of how investors are feeling about a sector of stocks. Some of the bigger names in solar energy saw a healthy gain in their share prices amid strong volume, signaling a renewed confidence among investors. As of the end of trading Monday, Solarfun was up 36 percent, while Yingli Green Energy and JA Solar were both up 18 percent. Overall, the Claymore/MAC Solar Energy Index was up 11 percent after the first six days of trading, compared with a 1 percent gain in the Nasdaq.

It took only three days to give back most of those gains. The bad news came from Europe, where France said it would cut feed-in tariffs for solar installations and Germany indicated it would do the same in a few months. After trading Thursday, The Claymore/Mac Index was up 2.8 percent, just a bit above the Nasdaq’s 1.1 percent gain.

France had been paying homeowners and businesses 55 euro cents ($0.80) per kilowatt hour for rooftop solar intsallations. On Wednesday, it announced it would cut that tariff to 42 euro cents ($0.61). As Bloomberg explained:

France cut tariffs for electricity produced from rooftop solar panels by 24 percent in an overhaulFollowing a “speculative bubble” that started in November, the Energy Ministry decided it would reject any applications from generators that hadn’t already applied for grid connection, according to the statement. Others will have to re-apply under the new tariff regime.

Then on Thursday, reports emerged that Germany would also cut its solar subsidies. Such a move had been expected for some time, but Germany’s reduction was greater than many had been expecting. According to Tech Trader Daily:

In a research note, Deutsche Bank’s Germany-based analyst, Alexander Karnick, says the report, if true, would be worse than expected for the solar sector “on several levels.” He contends that the consensus was for a roughly 10% cut in the country’s feed-in tariff program in June or July; the story suggests a larger cut, and a quicker implementation. A subsidy cut of that magnitude, he thinks, could trigger a round of price cutting by the solar wafer companies.

In short, the allocation of investor money into solar during the first several days of 2010 left some stocks ripe for a round of profit taking once bad news surfaced. It didn’t take long for that bad news to arrive, and there will surely be more in an industry known for its two-steps-forward, one-step-back method of progress.

But there are other signs that solar energy is moving forward. eSolar, a solar-thermal company, signed an agreement with China’s Penglai Electric to build 2 gigawatts of solar thermal projects in China this decade. The U.S. is offering tax credits to greentech manufacturers that could generate tens of thousands of new jobs. And private investments are picking up even if some government subsidies are disappearing.

Solar bulls may have been dealt a hard blow this week, but then again 2010 has only just started.